NIFTY – 20170415

What has the Nifty done?

Medium Term: September 2016 High was 8968 and today we’re at 9150. Again. Nothing much!!

Short Term: The move has been very sluggish (almost a grind-up) since Nifty made a high, after the budget.

Anyways, my biases and inclinations aside.

Let’s look at the data

Today, I’m going to look at the Nifty and the VIX. So, here go some simple observations

Since the August 2013 (FDI in Retail bottom … IIRC), Nifty has spent a bunch of time above the 20 Weekly SMA (approx. 125 weeks) and some time below the 20 Weekly SMA (approx. 65 weeks). Right now, the 20WSMA is @ 8672.

Why the distinction? Primarily because, during this period,

When the Nifty is > 20WSMA, the corrections (or red candles on the weekly charts, as I prefer to look) have been limited to 3 weeks except for one instance. Also, as would make sense, the “corrections” are much less severe i.e. 5.8%, 5.5%, 7.7%, 3.9% and 4.6%.

When the Nifty is < 20WSMA, the falls (or red candles again) tend to last up-to 4 weeks and of-course, the falls are of higher magnitude i.e. 9.3%, 9.5%, 6.5%, 12.55%, 7.3%, 9.2%, 10.2% and 9.4%.

Now Let’s come back to the current picture

NIFTY corrections above the 20WSMA tend to last, mostly, 3 weeks and the Nifty is already 2 weeks in this correction. (I count red candles as corrections / falls). The maximum back-to-back negative weeks have been 4 in one instance in Sept. / Oct. 2014.

During this period, a 4 week correction has ALWAYS tested or ended below the 20WSMA. Currently, the average stands @ 8672.

The current correction is 1.4%!!!! i.e. waaay lower than any previous correction, in this period, with Nifty above 20WSMA. This “correction” has been surprising in the fact of how little the NIFTY has fallen so far; two weeks into a correction.

What does this all mean?

Maybe we can say the greater the consolidation, the lesser the correction?

In both the post-Modi up-moves there were two instances of 9 weeks (June – August 2014) and 7 Weeks (July – August 2016) when the Nifty, practically, did nothing for close to two months. (Refer the chart below)

Nifty is 7 weeks into some sort of consolidation now.

So, are we in a one of these “go-nowhere” consolidations?

The VIX seems to think so. The last time, VIX was consistently below 15 for a substantial period of time was between August – November 2014. That aligns with the 9-week period of consolidation.

Why is the VIX important in this context? Because, IndiaVIX has quietly, created history

The lowest high the VIX has made EVER in a month since it’s inception, was September 2014 – 14.83 (ring a bell!!!!) and March 2017 – 14.72. Current month high is ~12.75!!!!!!!

if IndiaVIX doesn’t hit 15 in April: This will be first instance in VIX history that it won’t have hit 15 for two consecutive months!! I mean, what does the VIX need to rise? Trump is threatening to go to war with Syria and North Korea!!

Thanks to the budget in February; This is the first instance where the VIX has fallen below 12 in the months of March & April.

So, what is the conclusion?

There are, probably, 1-2 more weeks left of red candles on the Weekly Charts. If during this correction, Nifty falls below 8672; then the alarm bells should ring.

In all the instances of correction above the 20WSMA, Nifty made a significantly new high AFTER that 3/4 week correction.